New Delhi: Chief economic adviser Arvind Virmani expects the economy to grow between 8% and 9% in the fiscal year to March 2009 and inflation to return to “normal levels” in 12 months.
“The growth will be more towards the bottom end of this range,” Virmani said, but added that the expected dip in growth is cyclical and should not be mistaken for a downward trend in the economy, which has expanded at an average rate of 8.9% over the last five years.
A survey by the Reserve Bank of India has predicted that gross domestic product, or GDP, would grow 7.9% this fiscal year, down from an earlier forecast of 8.1%. Survey respondents said that there is a 57.3% probability of the economy growing in the range of 7.5% and 7.9%. DSP Merrill Lynch Ltd and UBS AG’s local unit expect the Indian economy to grow 7.6% and 7.1%, respectively.
Positive outlook: Chief economic adviser Arvind Virmani. Photograph: Harikrishna Katragadda / Mint
On inflation, which has reached a 13-year high of almost 12%, Virmani said that if the price of oil stabilizes over the next six months, the worst could be behind.
“I expect that inflation will come down to normal levels of between 5% and 6% in a year’s time,” he said. Virmani argued that two-thirds of the increase in the Wholesale Price Index, the key measure of inflation, came from three product groups — edible oil, oil products and iron ore and steel.
“Some of these products have risen by 100% over the past few months. This sort of rise is unprecedented,” he said. But, he said the Indian economy has already absorbed the price rises.
Virmani’s comments come at a time when the government’s finances are under pressure because of the rising cost of oil imports, fertilizer subsidies, the Rs71,680 crore farm debt waiver and increased salaries recommended by the Sixth Pay Commission.
Rating agency Moody’s Investors Service has raised doubts about India being able to meet the target of containing the fiscal deficit at 2.5% of GDP, warning that the country risks having its soverign rating outlook downgraded to “negative” from “stable”.
Virmani, however, said that revenue that accrued to the government in the past three to four months indicated that the country is well on its way to meeting its fiscal target.